Understanding the Difference Between Organic and Inorganic Growth for Your Business Strategy

To create a good business development strategy, it is important to understand what organic and inorganic growth are and the differences between the two.

Business growth or development has become one of the determinants of the success or failure of a business itself.

Both in product sales and services, business growth needs to be thought through carefully so that the direction is always clear.

Well, so that you don't take the wrong steps, you must know what organic and inorganic growth are and the differences between the two.

Read more in the article below.

What is Organic Growth

Quoted from Indeed, organic growth is the growth of a business that is obtained from the production of regular activities and operations such as product sales or services.

A company that wants to grow organically must utilize its business model, practices, and employees to increase sales and services.

The efforts made by a business to grow organically also vary, ranging from product innovation, improving services, advertising in the media, and others.

This is also the basic difference between organic and inorganic growth later.

Reported by Preferred CFO, here are some of the advantages of using the organic growth method:

• Company management understands the business well. Because there are no mergers or acquisitions of companies, the company's management understands the company's business strategy and operations better.
• There are no significant integration challenges due to restructuring in the company. This is one difference between organic and inorganic growth, companies with organic growth do not face integration and restructuring challenges.
• Have more control over the company's goals and the business being run. Without mergers and acquisitions, the company will have more control over the business.
• Business is more sustainable. As explained, organic growth is more sustainable for the development of a business.

What is Inorganic Growth

Businesses that grow through inorganic growth carry out mergers and acquisitions or by expanding the company.

According to Indeed, inorganic growth can develop with several efforts such as opening a business in another location, taking out loans, or adding business lines.

Expansion or addition of business locations is an important part of inorganic growth, also an important effort for the development of the company.

Inorganic growth will increase the company's assets, operations, liabilities, and liquidity.

Despite the challenges of entering new markets and restructuring, inorganic growth has the following advantages:

• Faster business growth. Many businesses grow up to three times faster with inorganic growth efforts.
• Increased market share. Market share increases tend to be faster.
• Increased knowledge and experience. Merging with other companies will be in line with the increase in knowledge and expertise that the company has to develop the business.
• More competitive in market competition. New sources of knowledge and human resources, assets, increased market share means your business will be more competitive in the competition.
• Ease of taking credit. Taking credit for business development will be easier after a merger or acquisition.

Differences Between Organic and Inorganic Growth

Indeed says there are some basic things that are the differences between organic and inorganic growth.

In general, the difference between organic and inorganic growth can be seen from their meanings. Organic growth is a company strategy to develop internally or from within the company, while inorganic growth is from external/outside the company.

In addition to these basic things, here are some lists of differences between organic and inorganic growth:

1. Timeframe

The first fundamental difference between organic and inorganic growth in business is the timeframe of the impact that will be felt on the business.

Inorganic growth will have an impact on increasing in the short term through acquisitions or additions of business locations.

Meanwhile, increasing business with an organic growth strategy will require a longer and more stable period of time.

2. Risk

Inorganic growth will carry a big risk if you merge or acquire a company that has financial problems.

Another risk that may also arise is having to add business lines and enter new markets.

Meanwhile, the risk of organic growth tends to be lower because it is carried out simultaneously with efforts to develop existing products/services.

3. Impact on Business

A business strategy using organic growth will focus more on the products/services that the company already has at that time, so that the impact on the business will not be too great.

Meanwhile, in inorganic growth, greater challenges must be faced because there could be a termination or replacement of new products/services in the company.

In terms of market competition, organic growth will experience tougher competition.

For inorganic growth itself, competition will be more focused because the merger of companies will make it easier to lead competition in the market.

4. Effect on the Company's Future

For the future of the company, the difference between organic and inorganic growth can be seen from the rate or steps of development.

Organic growth will create a more stable future and a safer rate for the company's development.

While due to mergers or acquisitions, inorganic growth will make the company have more stakeholders who play a role in the company and reduce individual control.

5. Availability of Resources

One of the significant benefits of inorganic growth is the increase in resources from employees, experts, and other resources.

Meanwhile, organic growth has limitations because it relies on existing resources in the company.

Which is Better for Business?

Now, after knowing the difference between organic and inorganic growth, you need to choose the best of the two for your business.

Both have their own roles, advantages and risks in the development of the company. Not all companies or types of businesses are suitable for both.

If you want to develop a product or service, organic growth will be better. However, when the goal is to expand the company's business, you can adopt inorganic growth.

Companies with good business development are those that can adopt both business strategies in a balanced way.

In order not to choose the wrong business strategy, it is important to understand how to analyze both strategies.

The goal is of course to produce a strategy that can be implemented well and optimally.

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